Entity information:
Income Taxes​
Under current Bermuda law, James River Group Holdings, Ltd. and its Bermuda based subsidiary are not required to pay any Bermuda taxes on their income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, the Company will be exempt from taxation in Bermuda until March 2035.
Distributions from the Company’s U.S. subsidiaries to its U.K. intermediate holding company, James River UK, are generally subject to a 5% dividend withholding tax. James River Group paid a $21.1 million dividend to James River UK during 2017 and remitted $1.1 million of dividend withholding taxes to the U.S. tax authorities for the year ending December 31, 2017. No similar distributions occurred in 2016. James River Group paid a $50.0 million dividend to James River UK during 2015 and remitted $2.5 million of dividend withholding taxes to the U.S. tax authorities for the year ending December 31, 2015.
The Company’s U.S. subsidiaries are subject to federal, state and local corporate income taxes, and other taxes applicable to U.S. corporations. The Company’s U.S.-domiciled subsidiaries file a consolidated U.S. federal income tax return. The
12.
Income Taxes​ (continued)
Company’s U.S.-based subsidiaries are generally no longer subject to income tax examination by U.S. income tax authorities for the tax years ending before January 1, 2014.
Financial results for 2017 reflect provisional amounts related to the December 2017 enactment of the TCJA. These provisional estimates are based on the Company’s initial analysis and current interpretation of the legislation. Given the complexity of the legislation, anticipated guidance from the U.S. Treasury, and the potential for additional guidance from the Securities and Exchange Commission (SEC) or the Financial Accounting Standards Board, these estimates may be adjusted during 2018.
The expected income tax provision computed from pre-tax income at the weighted-average tax rate has been calculated as the sum of the pre-tax income in each jurisdiction multiplied by that jurisdiction’s applicable Federal statutory tax rate. Federal statutory tax rates of 0% and 35% have been used for Bermuda and the U.S., respectively. U.S. deferred taxes have been remeasured at 21%, down from 35% in prior periods. U.S. income before Federal income taxes was $50.1 million, $18.3 million, and $15.2 million for the years ending December 31, 2017, 2016, and 2015, respectively. A reconciliation of the difference between the Company’s Federal income tax provision on U.S. income and the expected Federal tax provision on U.S. income using the weighted-average tax rate as well as a reconciliation to total tax expense is as follows:
​
Year Ended December 31,
​
2017
 
2016
 
2015
​
(in thousands)
Federal income tax expense at applicable statutory rates
$
17,541

 
$
6,401

 
$
5,317

Tax-exempt investment income
(586
)
 
(643
)
 
(858
)
Dividends received deduction
(792
)
 
(880
)
 
(867
)
Excess tax benefits on share based compensation
(2,114
)
 
—

 
—

Effect of tax rate reduction on deferred tax liability
(3,498
)
 
—

 
—

Other
(90
)
 
(6
)
 
379

Federal income tax expense
$
10,461

 
$
4,872

 
$
3,971

U.S. state income tax expense (benefit)
65

 
—

 
(192
)
U.S. dividend withholding tax
1,053

 
—

 
2,500

Total income tax expense
$
11,579

 
$
4,872

 
$
6,279


12.
Income Taxes (continued)
The significant components of the net deferred tax liability at the corporate income tax rate of 21% for the year ended December 31, 2017 and 35% for December 31, 2016 are summarized as follows:
​
December 31,
​
2017
 
2016
​
(in thousands)
Deferred tax assets:
​

 
​

Accrued compensation expenses
$
1,712

 
$
1,604

Reserve for losses and loss adjustment expenses
3,036

 
4,810

Unearned premiums
1,709

 
2,859

Share based compensation
1,143

 
2,281

Allowance for doubtful accounts
579

 
748

Deferred policy acquisition costs
1,509

 
1,983

Property and equipment
1,601

 
2,649

AMT credit
—

 
464

Invested asset impairments
791

 
291

Other
1,564

 
2,946

Total deferred tax assets
13,644

 
20,635

Deferred tax liabilities:
 
 
 
Intangible assets
7,521

 
12,554

Net unrealized gains
2,578

 
1,586

Deferred gain on extinguishment of debt
63

 
212

Equity method investments
8,348

 
8,668

Other
381

 
517

Total deferred tax liabilities
18,891

 
23,537

Net deferred tax liabilities
$
(5,247
)
 
$
(2,902
)

Deferred income taxes have not been accrued with respect to certain undistributed earnings of foreign subsidiaries. If the earnings were to be distributed, as dividends or otherwise, such amounts may be subject to withholding taxation in the jurisdiction of the paying entity. The Company asserts that U.S. unremitted earnings as of December 31, 2017 will be permanently reinvested in the U.S. and, accordingly, no provision for withholding taxes arising in respect to U.S. unremitted earnings has been made.
The Company had no reserve for future tax contingencies or liabilities (“unrecognized tax benefits”) at December 31, 2017 or 2016.
The U.S. imposes a 1% excise tax on reinsurance premiums paid to non-U.S. reinsurers with respect to risks located in the U.S. The rates of tax are established based on the nature of the risk, unless reduced by an applicable U.S. tax treaty. For the years ended December 31, 2017, 2016, and 2015, the Company paid $3.4 million, $2.6 million, and $1.9 million, respectively, of federal excise taxes on its intercompany reinsurance transactions. The Company also paid excise taxes of $2.2 million, $1.6 million, and $1.7 million for the years ended December 31, 2017, 2016, and 2015, respectively, on written premiums assumed from third-party insurers with respect to risks located in the U.S. These excise taxes are reflected as “other operating expenses” in the Company’s consolidated income statements.